M/S MUNJAL SALES CORPORATION,LUDHIANA vs. DCIT, C-5, LUDHIANA

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the assessee against the order dated 10.03.2017 of the Commissioner of Income Tax (Appeals), [hereinafter referred to as CIT(A)]-2, Ludhiana.

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noticed that the assessee had made investment in shares whereupon the

assessee earned tax exempt dividend income of about Rs. 2.95 crores. On

being asked to explain as to why disallowance u/s 14A of the I.T. Act read

with Rule 8D of the Income Tax Rules, 1962 be not made; the assessee

explained that all the investment were old investment and no new

investment were made during the year. That the assessee had not incurred

any expenditure during the year in relation to the aforesaid investments.

Further, a sue moto disallowance of Rs. 50,000/- was offered taking into

consideration the past disallowance made by the Revenue authorities in

relation to the same investment. The Assessing officer, however, did not

agree with the above contention of the assessee and calculated of the

disallowance under rule 8D of the I.T. Rules at Rs. 8,16,513/-/

assessee preferred appeal before Ld. CIT(A). The Ld. CIT(A) considering

the overall facts and circumstances of the case and submissions of the

assessee restricted the aforesaid disallowance to Rs. 2,86,513/-.

Tribunal. A plea was taken before the Tribunal that no expenditure was

incurred by the assessee for earning of tax exempt income. That the lower

authorities were not justified in making the disallowance more than that

was suo moto offered by the assessee. It had also been pleaded that even

the Assessing officer had not recorded any dissatisfaction on the suo moto

disallowance offered by the assessee and that the Assessing officer

proceeded to make the disallowance without rejecting the contention of the

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assessee that it had not incurred any expenditure for earning of tax exempt

income.

for the assessee vide order dated 3.12.2016 remanded the matter back to

the file of the CIT(A) to adjudicate the mater afresh considering the above

submissions of the assessee. Pursuant to that, the Ld. CIT(A) passed the

impugned order dated 16.8.2017 observing that Assessing officer had

recorded satisfaction before making disallowance u/s 14A of the I.T. Act

read with rule 8D(2) of the I.T. Rules. He, therefore, reconfirmed the

disallowance already confirmed in the first round of appeal at Rs.

2,86,513/-. The assessee, thus, has come again in appeal before us.

assessee has brought to our attention para 5.2 of the impugned order

wherein the Ld. CIT(A) has reproduced the relevant part of the assessment

order wherein the alleged satisfaction was recorded by the Assessing

officer. The Ld. CIT(A) held that it was not a case where the Assessing

officer had not recorded dis-satisfaction to the suo moto disallowance

made by the assessee. Para 5.2 of the order being relevant is reproduced as

under of the sake of reference:-

“5.2 I have considered all the submissions made by the assessee firm afresh. On careful consideration of the rival contentions, I am of the opinion that the Assessing Officer has clearly recorded his satisfaction in para 4.2 of the assessment order which read as under:-

4.2 The reply of the assessee is carefully considered and is found to be untenable. The assessee has claimed

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that the income earned from investment in partnership firm is not tax-free income as the tax was duly paid by the partnership firm and the profit after tax was distributed to the partners as such, section 14A is not attracted in its case. I do not agree with this contention of the assessee. The fact remains that the assessee made investment in capital of a partnership firm. The investment in firm is for earning income from share of profit of partnership firm. Share of profit received by a partner from a firm is exempt u/s 10(2A) of the J.T. Act. Thus the investments as referred to above are for earning exempt income. The fact also remains that assessee had earned share of profit from these investments and no interest income has been received on this capital During the year. Any expenditure incurred in relation to earning such income is not liable u/s 14 A of the I.T. Act.

Apart from this, the learned AR of the assessee firm was asked to give the basis for disallowing only Rs, 50,000/- under section 14A of the Act. In response to this, the learned AR of the assessee firm has submitted that the disallowance has been made on the basis of past history of the case which has been accepted by the Department in earlier years. It may not be out of place to mention here that the disallowance under section 14A which was upheld by the learned CIT (Appeal)-2, Ludhiana in A.Y. 2009-10 out of disallowance made by the Assessing Officer under identical facts has been upheld by the Honorable ITAT, Chandigarh vide its order in ITA No. 274/Chd./2015 dated 07.07.2015 in the case of the assessee firm itself. As the assesses firm has no basis to disallow Rs. 50,000/-, I am satisfied that the disallowance made by the assessee firm itself was not

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correct as it has no scientific or acceptable basis. Moreover, I am of the considered opinion that the Assessing officer has clearly recorded his satisfaction in the assessment order with regard to his disagreement with the disallowance made by the assessee firm itself. In other words, the satisfaction of the Assessing Officer is discernible from the assessment order and it cannot be said that the Assessing Officer has not recorded his dissatisfaction with the disallowance made by the assessee firm itself. Moreover, the disallowance made by the assessee firm has no scientific or acceptable basis. The Honorable IT AT. Chandigarh in its decisions for the A. Y. 2009- 10 upheld the order of learned CIT(A)-2, Ludhiana wherein similar disallowance made by the assessee firm was rejected. In view of these facts, the disallowance upheld by the then CIT(Appeals)-2, Ludhiana is retained and upheld as it does not call for any interference. In the result, the grounds No. 2 and 3 of appeal taken by the assessee firm are considered as partly allowed.”

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profits of the firm. He explained that in fact the assessee was a

partnership firm itself. That it was not a case of receipt of share of profit

by the partner from the profits of a firm, rather it was a case of receipt of

income by the firm from its investment activity. Even otherwise, we find

that there is no dissatisfaction recorded either by the Assessing officer or

by the CIT(A) to the pleadings of the assessee that the investments were

old investments and no new investments were made. That the assessee had

redeemed a part of the investment during the year and further that all the

investments were made in the group concern and that no expenditure was

incurred by the assessee during the year in respect of the aforesaid

investments. We find that the Ld. CIT(A) has simply relied upon the

findings of the Assessing officer without examining the actual facts. In

view of this, the impugned order of the CIT(A) is not sustainable in the

eyes of law. The assessee succeeds on this ground. The impugned

additions made by the Assessing officer over and above sue moto

disallowance made by the assessee are ordered to be deleted.

Order pronounced in the Open Court.

Sd/- Sd/- (Dr. B.R.R. KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 13.03.2018 Rkk

Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR

ITA No. 1355/Chd/2017 (Munjal Sales Corporation)